Whether for jobs or home prices, data can be as much art as science

As much as numbers can tell a story, revisions occur and round out the picture

July 13, 2011|Phil Rosenthal

A number means something. A number has a specific value. Words can be fuzzy. Numbers are literally what you take to the bank.

Or so we like to think.

The Illinois Association of Realtors this week conceded the median price it reported for home sales in May within Chicago wasn't as high as it originally said. What's more, its reports may have been wrong over a span of more than three years. A technical problem is being blamed for the error, and different sources have different figures. In any case, condominium prices in the city, for example, apparently went down in May on a year-to-year basis, not up.

Yet even when the numbers are right, they can be wrong.

Current unemployment is said to be 9.2 percent. But factoring in the underemployed and those who have stopped looking for work, the broader unemployment rate is reportedly 16.2 percent.

The Bureau of Labor Statistics reported the other day that there were only 18,000 new nonfarm payroll jobs in the United States in June. But it also said the job situation for May and April was worse than originally reported.

"What we're giving are not best guesses. They're estimates derived using standardized procedures under sampling theory," said Ed Robison, chief of the Current Population Survey branch in the Statistical Methods staff at the Bureau of Labor Statistics. The BLS relies on its own surveys without input from the administration, Federal Reserve, Fannie Mae or other government entities.

It's seldom mentioned, but the Labor Department figures are issued with 90 percent confidence and are routinely tweaked as more data comes in. The revised figures for new jobs in May dipped from 54,000 to 25,000. April was downgraded from 232,000 to 217,000.

"We as analysts are sometimes more assertive than the underlying data, for technical reasons, will support," said Patrick O'Keefe, director of economic research at J.H. Cohn. "All too often, either out of fear of boring the audience or sounding less insightful than perhaps we'd prefer, we don't point out that there are technical limitations to almost all data sets."

Figures that typically would be seen as firm can be subject to revisions, as the Chicago home sale prices show. And, O'Keefe said, "presumably they would have pretty good inputs to begin with."

O'Keefe, who was a deputy assistant director at the Department of Labor during the Reagan administration and deputy director of the National Commission for Employment Policy, notes that it's not the monthly figures that matter anyway. It's the trends they showcase. By any standard, 54,000 or 25,000 — as part of a nation with more than 130 million jobs — is flat.

"Even in a historical context, we won't be absolutely certain what a particular month's number was," O'Keefe said. "We will have the benefit of hindsight to get closer to what reality was, but an exact count will always be elusive because we're not conducting a continuous census of the population and the households and the employers etc.

"You understand the limitations of those numbers, but the strength they have is they're based on accounts somewhere."

So whether the just-announced 18,000 new jobs in June becomes a loss of 90,000 jobs or a gain of 100,000 in revision, it only matters in the context of the larger recovery.

"So I can tell you that, in the private sector, going back to March of 2010, the data are sufficiently consistent to show the private sector has been adding jobs for the last 16 months but has been doing so at a subaverage level when we look at recoveries from other recessions," O'Keefe said. "Particularly when we compare it to that which occurred in the mid-1970s and the early 1980s, both of which were very protracted affairs with sharp downturns in jobs, this has been a very subdued recovery.

"We can step back and look at the household surveys and we'll look at the income patterns. We'll look at new orders in manufacturing and we'll go to all the other data sets. It suggests to me as an analyst that … we can look at that and say that number is going to stay at subtrend levels for years to come."

Public discourse is full of indexes and averages that suggest information but lack the precision of, say, a weather report that specifies rainfall and temperature. Movie box-office figures are announced on newscasts and in print, often without the proviso that they are estimates.

Job figures will continually be revised. Come February, O'Keefe said, "the bureau, based on more complete data, will revise not only the 2011 data but also in all likelihood will revise 2010 data and quite possibly some of 2009."

That's why a sophisticated reading of the economy also takes into account public and proprietary information. Even then, it's still less definitive at any given point in time than one might wish.

Economics is not a precise science, no matter how much we want and hope for it to be, especially while waiting out a recovery.

"It's very much an art," O'Keefe said. "It's an art that's supported by and has pretensions of mathematical genius."

And you know the old line: We may not know much about art, but we know what we like.